Global Trends by Martin Khor
Monday 23 February 2004
The agriculture sector and small farmers in developing countries are being adversely affected by a web of global trade rules that ironically protect big farms in rich countries but pressurize the developing countries to open up their markets. A forum in Rome last week heard the views of experts, policy makers and NGOs on the unfair global regime, the effects on small farmers and what developing countries are trying to do to rectify the situation.
Agriculture is in the doldrums in many developing countries, as small farmers find it harder to survive.
Some are ruined by cheap imports as governments reduce their tariffs. Others find stiff competition in export markets as the subsidized products of the rich countries take away their market share.
The plight of Third World agriculture is linked to a system of unfair global rules that allow rich countries to protect and subsidise their big farms and food companies, at the same time pressurising developing countries to open their markets to cheap food imports.
That’s the bad news. The good news is that many developing countries are fighting back, forming their own coalitions to press the developed countries to end their subsidies, and to allow the poor countries to defend their own farmers’ interests.
The battle over agriculture lies at the heart of the current impasse in the World Trade Organisation talks. Talks on agriculture will intensify in the next few months to meet a new mid-year deadline to agree on a “framework” for the rest of the negotiations.
Last week, experts, negotiators and NGOs discussed the issues at a forum in Rome linked to the Governing Council meeting of the International Fund for Agriculture Development (IFAD), a United Nations agency.
Among the speakers were senior officials from Brazil, Indonesia and the Food and Agriculture Organisation (FAO), experts and NGO representatives. The Forum on the Impact of Trade Liberalisation on Poor Rural Producers was organized by the Malaysia-based Third World Network.
IFAD President Lennart Bage (a Swedish national), said the theme of liberalization’s impact on small farmers was critical as IFAD’s field experience gives ample evidence that the farmers’ prospects are affected by globalisation.
The international agriculture trade regime impinges on the lives of the rural poor, and IFAD wants to reflect on how to reduce their vulnerability and help them take advantage, he added.
The WTO’s agreement on agriculture (AoA), established in 1994, was highlighted by Bhagirath Lal Das, an international trade expert and previously India’s ambassador to the GATT (General Agreement on Tariffs and Trade).
According to Das, the AoA is grossly unfair to developing countries, which had not been aware of its implications during the negotiations, which had been dominated by the United States and Europe.
The AoA allows the rich countries to maintain or even increase their very high domestic farm subsidies (which total about US$300 billion a year) and to keep much of their export subsidies. Developing countries are constrained by lack of funds and by the rules to match these subsidies.
As a result, the rich countries are able to keep their own markets and to export to global markets, even though their agriculture is less efficient.
The solution, said Das, is to revise the AoA to correct the imbalances. The rich nations’ export subsidies should end immediately, and all types of domestic subsidies should be subjected to reduction.
Because of their weakness, developing countries should be given special and differential treatment, a principle recognized in the WTO. To protect small farmers and promote rural development, developing countries should not be asked to reduce their bound tariffs on food products further, but be allowed raise the tariff levels if they are threatened by cheap imports.
Can this revision be done? Das was not hopeful, as the US and European Union (EU) have agreed with each other to have a strategy of “mutual forgiveness” of their own protectionist practices, whilst at the same time pressurizing the developing countries to liberalise their markets.
However, the developing countries have formed their own groupings, such as the Group of 20 or G20 (led by Brazil, India and South Africa) and the Group of 36 (led by Indonesia), to face the challenge of the US-EU proposals.
Ambassador Luiz Felipe de Seixas Correa, Brazil’s Ambassador to the WTO and one of the key founders of the G20, gave a first-hand account of why and how the Group was set up and what it wanted to achieve.
In 2001, the WTO’s Doha Ministerial meeting adopted a mandate for the agriculture negotiations, that called for phasing out of export subsidies, reduction of domestic subsidies and important reductions in tariffs in the North, with special and differential treatment for the South.
“It is essential to preserve this Doha mandate, but we are worried as there are clear and present threats to this mandate,” said Seixas Correa.
Recent developments show that the US and EU have problems living up to their Doha commitments. Their recent domestic laws and policies (such as the EU’s agriculture reform and the US Farm Bill) are not in line with the curbs in export or domestic subsidies that the Doha mandate calls for, and they continue to resort to tariff and non tariff barriers that block access of developing countries’ products to their markets.
The EU and US came up with a joint paper last August, which was a “thoroughly self-serving proposal”, which accommodated their own interests but did not incorporate anyone else’s, said Seixas Correa.
He recalled that the G20 was formed by developing countries as a response to this EU-US proposal. Within a few days, they tabled their own counter-proposal and at the WTO’s Ministerial meeting in Cancun they showed they could negotiate strongly as a group and made a major impact.
In the current situation, the G20 (which comprises 5 African, 6 Asian and 8 Latin American countries) continues to maintain its cohesion, said Seixas Correa, and their demands remain the phasing out of export subsidies, reducing domestic support overall and improving market access in the North, whilst ensuring that developing countries can meet their needs for rural development, food security and farmers’ livelihood security.
A key issue in the talks is whether the EU is ready to keep to the level of commitments in the Doha mandate, or whether their so far inadequate common agriculture policy reforms will hamper their ability to do so, Seixas Correa added. It is still too early to tell, but he was not optimistic.
The Forum also heard from Indonesia, which coordinates the Alliance for Special Products (SP) and Special Safeguard Mechanism (SSM), a group of 36 countries (or G36) formed to protect the special concerns of small farmers in developing countries.
Kaman Nainggolan, director of the Indonesian Agriculture Ministry’s planning and finance bureau, said the industrial countries had accused developing countries of being inefficient. But this was unfair. If the rich countries eliminated their subsidies, many developing countries would be able to compete with them successfully and thus correctly be seen as more efficient.
Indonesia had to reduce its agriculture import duty some years ago as a result of the International Monetary Fund’s loan conditions and of the WTO rules. This led to a surge of imports, causing difficulties to the farmers. The government is now seeking to raise the applied tariffs to protect the rural sector, said Kamran.
The Alliance was formed in Cancun with two demands. Firstly that developing countries be given the right to self-designate a number of tariff lines as “special products” that are important for food security and poverty alleviation. These products would not be subjected to tariff cuts.
And secondly, that a “special safeguard” mechanism be set up to protect developing countries from import surges, as had happened with rice imports in Indonesia. When such surges occur, tariffs can be raised to protect the small farmers’ local produce and their livelihoods.
“It is meant to be a self-defence mechanism as a remedy against import surges, and not to impede agricultural trade as most of us are net food importers,” explained Kaman. “It is meant to increase poor farmers’ incomes across the developing countries.”
Saying he was “skeptical” of the chances that the US and EU could agree to reform their subsidies system, Kaman stressed it was thus even more vital that developing countries be given the right to defend their farmers by making use of the SP and SSM concepts and mechanisms.
Dr. Harmon Thomas of the FAO provided rich data that backed up Kaman’s contention that many developing countries were facing import surges in many products. There was, he said, a rise in both food imports and in import surges in developing countries in recent years, and this had displaced local production.
The current WTO talks gave the opportunity for reforms aimed at reducing distortions in the North and provide a special mechanism against import surges for the South.
There should also be policy incentives for agriculture investment in the developing countries, which should also be helped to diversify from dependence on one or two export commodities, added Thomas.
Tim Rice of ActionAid, an NGO based in London, stressed that the efforts of the US and EU to “reduce” their trade-distorting domestic subsidies should not be expected to have effects since these were aimed merely at shifting from one type of subsidies to other types of subsidies.
He added that developing countries are right to question if the new types of subsidies are really non trade-distorting and if the effects of these subsidies are the same as the old ones, in maintaining the same level of output in the next five to ten years.
The NGOs propose that all types of domestic subsidies be subject to scrutiny. Those that are now considered to be trade distorting should be eliminated, and others that are now classified as non trade distorting should nevertheless have a ceiling placed on them and the criteria on this category be tightened.
Meenakshi Raman of Friends of the Earth presented case studies of developing countries whose small farmers had been ruined or otherwise adversely affected by rapid liberalization of food imports.
These included Mexican farmers which could not compete against US products when they joined the North America free trade pact; Haiti and Honduras whose rice farmers lost their incomes when they reduced their tariffs and were faced with the influx of subsidized US rice; and Jamaica whose dairy farmers could not compete with cheap milk powder from Europe.
Other examples included the import of Italian tomato paste displacing the markets of Ghana tomato growers, and Sri Lanka where many thousands of farmers producing onions, potato and poultry were overwhelmed by cheap imports.
Most of the countries had lowered their tariffs sharply as a result of the conditions placed by the IMF and World Bank when giving loans. Thus their applied tariffs (or the tariff levels that are currently in place) are very low, even though their tariff levels bound at the WTO (which they are obliged by WTO rules not to exceed) may be higher.
The fear is that the current WTO talks would add further pressure by pressing down the bound tariff levels of the developing countries.
The Forum helped to raise awareness of the unfair rules of the game in agricultural production and trade, the current talks in WTO, the positions of two major groupings of developing countries, and the views of some NGOs.
The big question is how will the agriculture talks develop in the next few months at the WTO, and whether the developing countries can stand up to the pressures that can be expected from the industrial countries, especially the US and the EU.
At stake are the prospects for both the agriculture sector and the small farmers in the developing world.